New Florida Corporate Entities

On July 1, 2014, SB 654 and HB 685 became official and amended the Florida Statutes regarding business entities. The new law not only reorganizes Chapter 607 of the Florida Statutes, but creates two new types of corporate entities in Florida: Social Purpose Corporations and Benefit Corporations. These two new types of corporations will be subject to the statutory regulations of corporations traditionally found in Chapter 607 with a few specific variations.

Social Purpose Corporations are created to pursue or create one or more public benefits of a specific nature. This means that in the incorporating documents of the corporation, the entity will set forth the specific public benefits it seeks to further in its operations. This is distinct from Benefit Corporations, which are created to pursue or create a general public benefit (without a specific nature required). The important distinction to note is that Social Purposes Corporations require the entity to know what its goals are in a much more defined way at inception, whereas Benefit Corporations just need to express intent to further a general public benefit at creation.

For most people, the follow up question is “Why?” Traditionally, we refer to for-profit-corporations by that name because that is their ultimate goal, the generation and consistent increase in profit for the shareholders. This overarching goal touches every aspect of the legal landscape for corporations, and is part of the judicial review in derivative actions against executives and boards of directors. What these new corporate entities allow for is the corporate executives and board of directors to make decisions that are not just for the maximization of profits, but also for the public benefit or social purpose of the corporation. This may sound unnecessary but it is a real concern among modern businesses attempting to balance short term gains versus long term effects. Previously, if a board of directors had to determine whether a profitable act causing a social detriment should be taken by the corporation, most if not all weight in the decision was given to profit, otherwise the board of directors risked opening themselves up to liability to the shareholders. Now, these new corporate entities remove that tension and allow for a more comprehensive view of both the corporation and the society in which it operates.

The addition of these new entities to Florida’s Corporate Laws reflect an ongoing trend across other jurisdictions of the United States, with 20 states and D.C. already having similar mechanisms in place. Florida appears willing to push to the forefront of innovative business climates and hopefully these new entities are just the first step.